1970 (12) TMI 71 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Definition of "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959.
2. Liability to pay purchase tax under section 13 of the Bombay Sales Tax Act, 1959.
3. Interpretation of "business" in the context of works contracts.
4. Application of the Supreme Court decision in The State of Andhra Pradesh v. H. Abdul Bakshi & Bros.
5. Impact of purchases made for the execution of works contracts on tax liability.

Issue-Wise Detailed Analysis:

1. Definition of "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959:
The core issue revolves around the interpretation of the term "dealer" as defined in section 2(11) of the Act. The definition states that a "dealer" is any person who carries on the business of buying or selling goods in the State. The court examined whether a person engaged in a works contract, who purchases goods for the execution of that contract, qualifies as a "dealer." The court concluded that the definition of "dealer" includes those who engage in the business of buying goods, even if those goods are not resold but are consumed in the business activity.

2. Liability to pay purchase tax under section 13 of the Bombay Sales Tax Act, 1959:
Section 13 imposes a purchase tax on goods purchased from unregistered dealers unless the goods are resold within a specified period. The court analyzed whether the purchase of goods for use in a works contract triggers this tax liability. The court found that if the purchases are essential and integral to the business activity, they fall within the scope of section 13, making the purchaser liable for the tax.

3. Interpretation of "business" in the context of works contracts:
The court examined the nature of "business" as it applies to works contracts. It was determined that a works contract constitutes a business activity because it involves a systematic, organized course of activity aimed at making a profit. Consequently, the purchase of goods necessary for executing a works contract is considered part of the business activity and thus falls under the definition of "business."

4. Application of the Supreme Court decision in The State of Andhra Pradesh v. H. Abdul Bakshi & Bros.:
The court relied heavily on the Supreme Court's decision in H. Abdul Bakshi & Bros., which held that a person who consumes a commodity in the course of their trade or uses it in manufacturing another commodity for sale is regarded as a dealer. The Supreme Court's ruling established that the consumption of goods in the course of business, even without resale, qualifies as a business activity, thereby subjecting the purchaser to tax liability.

5. Impact of purchases made for the execution of works contracts on tax liability:
The court concluded that purchases made for the execution of works contracts are integral to the business activity and thus subject to purchase tax under section 13. However, it distinguished between goods that are indispensable for the business activity and those that are not. For example, capital assets like motor trucks, which are not consumed in the business activity, do not attract purchase tax.

Conclusion:
The court answered the reference by holding that a person engaged in a works contract, who purchases goods for the execution of that contract, is a "dealer" within the meaning of section 2(11) of the Act. Therefore, such purchases are subject to purchase tax under section 13, provided they are essential and integral to the business activity. The court also clarified that capital assets do not attract purchase tax as they are not consumed in the business activity. The reference was answered in the negative for the specific case of motor trucks, as they were considered capital assets.